House Flipping 101: Kent Clothier's Bulletproof SaaS For Making Money In Real Estate

The world has become fixated on flipping homes, emboldening television stars to become household names such as Canada-based, Property Brothers, featuring Jonathan and Drew Scott, or Flip or Flop's, Christina and Tarek El Moussa, along with countless others. Our obsession with the fixer-upper dream has pervaded our lives for years now, with an exponential rise in new shows appearing on networks like A&E, HGTV and the DIY Channel, just to name a few.

However, what most people don't realize is that house flipping can be done without ever taking possession of a home. Simply put, you can flip a contract and make money without having to deal with contractors, inspectors or anything else for that matter. While flipping in the traditional sense is big business, flipping contracts is even bigger. Yet, for the average person who isn't in-the-know, doing this might seem extremely risky or murky at best. But it's far from that.

In another article, I covered multi-millionaire, Kent Clothier, who's rags-to-riches story is something that seems more like fabled-fantasy than actual reality. While the concept of arbitrage, or the process of buying something at one price and turning around to sell it at another price, has existed for quite some time now, Clothier has made it systematic by building a SaaS platform that helps to streamline the entire process.

In technical terms, this is called reverse wholesaling. It's a concept that he learned in the grocery business, doing arbitrage to buy and sell product on a massive scale, and building a $1.8 billion business in the process. However, Clothier's departure from that business left him scrambling to figure things out 22 months later when he almost went completely broke. It was a matter of desperation that helped him find the answers he needed to apply this concept to the real estate industry.

Reverse wholesaling is just a fancy way of saying that you've found cash buyers with the intention of purchasing specific homes with specific criteria in certain areas. Armed with this knowledge and those relationships, you can quite easily remove the risk from the equation by seeking homes that qualify and meet the needs of these investors. At that point, the option is yours on what route you plan to take with the secured real estate contract.

Flipping a home in this fashion, without ever taking possession, and without ever having to use your credit to do it, is an ideal way to make money with very little financial risk. Of course, entering into any real estate purchase agreement can seem scary at best, but Clothier, who's done over 4,000 of these house flips, tells me that it all boils down to a very simple 5-step process. Intrigued by his mindset and the process, I wanted to discover more about the system he created to virtually "automate" this process.

How To Make Money In Real Estate

Everyone knows that there are numerous ways to make money in real estate. Being a landlord poses one of the greatest sources of passive income that's out there, with the added bonus of potentially increasing-asset valuations over time. However, not everyone has the capital to start out with an investment home. In fact, some people struggle to even own the home that they live in let alone an investment property.

That's why the application of arbitrage to real estate is so alluring. In fact, it's likely why not as many people discuss this strategy, because most of the world's astute real estate investors want to keep it to themselves. However, Clothier has actually designed a SaaS platform used by over 22,000+ members, and counting, that actually empowers this specific strategy.

"Wholesalers make a profit by signing a contract to purchase a property from a seller and then entering into an agreement with a third party to resell the same property at a higher price for a profit. All rights to the original purchase contract are assigned to the new buyer and the new buyer pays an "assignment fee" to the wholesaler in order to gain all rights to purchase the property at the original purchase price. The original purchase contract usually has an "inspection period" which allows the original buyer to back out of the contract and not close on it if they do not find a buyer to assign their contract to. Many wholesalers have no intention of actually purchasing the property and simply use wholesaling as a tool to locate properties for other investors."

In retrospect, the concept of reverse wholesaling simply means that you've done market research that could potentially line up the demand and the buyers, rather than entering into a contract that you then have to scramble to find a buyer for. It's one thing to located distressed homes or motivated sellers, but it's an entirely different thing to find cash buyers who are ready and willing to take those homes off your hands.

Of course, traditional real estate transactions have long been the draw for people from all over the world who are looking to turn a substantial profit. But, generally speaking, real estate often demands a hefty investment from the principal, which is you. It involves utilizing your credit, your assets and a significant amount of cash, upfront, to secure the property. However, creative investors know that there's far more to real estate than that.

Clearly, multiple approaches to investing in real estate can take place simultaneously. But if you lack the cash or the credit, you could easily leverage the arbitrage strategy to effectively barrel your way to a significant cash realization, and do it relatively quickly if you needed to, emulating the steps that Clothier has taken.

How To Flip Property Contracts

Real estate has been the single biggest money maker in the past millennia, and real estate transactions have been occurring since the dawn of modern-day civilizations. However, looking beyond the traditional sense of flipping a house often isn't done. Most people look at the process very methodically, emulating what they see on hit television shows and reality series that portray the romanticism in the process of fixing up a house for profit.

However, it's quite simple to remove a large chunk of time and headache from the entire equation. In fact, Clothier tells me that there are 5 distinct steps for arbitraging in the real estate industry in this fashion. Once anyone gets the hang of it, it's far easier and more straightforward to make money with this type of transaction than it is to physically involve yourself in 6 to 12-month flips that also requisite shelling out a lot of capital.

On the other hand, entering into an arbitrage-style flipping of house contracts is far less expensive. In fact, Clothier tells me that he can open escrow, often, with just a few hundred dollars, depending on the value of the home. And using this model, his family's organization has flipped over 4,000 homes at over a half-a-billion dollar price tag. In his first 18 months of doing this, with only $3,000 in his bank account to begin with, he was able to clear a million dollars on 91 flips without ever taking possession.

For anyone who wants to make money, this is genuinely one of the best ways to go about doing it. There is some legwork involved, but when you understand all the moving pieces, doing this can be far more straightforward than the house-renovation-flipping alternative version. In total, Clothier tells me that there are 5 major steps that are involved in this process. Once you can understand and leverage each of the steps, making significant strides will happen almost automatically.

Step 1 -- Find Cash Buyers

The first step in this process is to find the cash buyers. This is the "reverse" part in reverse wholesaling. Having the cash buyers at the front-end gives you an advantage because it gives you pre-backed demand. In order to find the cash buyers, all you need to do is head to public records and search for any transactions of deeds that were recorded without liens.

Whenever someone buys a home and they take a mortgage, a lien is recorded. When there's no lien recorded for a particular purchase, that's an indication that the transaction occurred in cash. Finding cash buyers is a great way to jump to the front of the line with house flipping. Even in the traditional flipping sense, if you were to take possession, by having cash buyers lined up, you can almost guarantee yourself a swift profit.

However, as opposed to sifting through public records by hand, Clothier's SaaS has automated this process. It allows you to identify all the cash buyers across millions and millions of real estate transactions happening across the United States, in real-time. Additionally, it allows you to generate letters to all those cash buyers on demand, tailoring them with their names, past purchases and your information. This is a powerful tool for getting out in front of those buyers quickly.

Step 2 -- Build And Nurture Relationships

The next step in the process, according to Clothier, is to nurture the relationships. Once you find the cash buyers, your job doesn't end there. You have to foster and grow that relationship, adding value to the equation. You can't simply expect to have buyers in your pocket at the outset. You need to find ways to help them as well.

This is one of the most critical and important steps to success in any endeavor. But especially when we're talking about lining up buyers who are qualified to help you flip the contracts you secure, you need to pay special attention to doing this. It's a fine line of adding value and trying to help others at the outset before you can really grow those relationships over time.

The single most central concept to keep in mind here is to ensure you work to grow that relationship. This isn't about brown-nosing; this is about finding ways you can help them, even outside the professional relationship you're attempting to foster and mature. How you do this and just specifically how you approach things could make the difference between success and failure.

Step 3 -- Find Motivated Sellers

The next step in the process is to find the sellers, which would bring together both sides of the equation. When Clothier started doing this, he was completely broke, down to the last $3,000 in his bank account. To do it, he had to go out and sift through all sorts of records to figure out which properties were either distressed or vacant.

It wasn't easy. But he did it. However, the unique part of the software is that he's taken all the guesswork out of it, making it a straightforward way to find parties to both sides of the transaction. The SaaS does all the work, generating every single address in the area that you select, anywhere in the United States, that are either empty or distressed.

However, once you do find the motivated sellers, you can easily bring those parties together. There are certain ways you need to approach these people with sending direct mail, and specific verbiage that works over others. But, either way you slice it, whether you use software to automate much of this process or don't, you can still arbitrage your way into the real estate market relatively simply.

Step 4 -- Put The Property Under Contract

Once you've found the buyer and the seller, all you need to do is put the property under contract. Of course, it's important that this is done in good faith, and laws will vary in each locale that pertain this to type of thing. The important thing to note here is that you have the intention to close on the home if need be.

When I asked Clothier more specifically about this, he informed me that there are loads of hard-money lenders that can help in this specific situation. Even if you have to close on the property yourself, you can then work to flip the home after. Of course, it's far more beneficial to bring the parties together prior to that, but it's much more important to operate in good faith in any real estate transaction.

While there are plenty of details to cover regarding putting a property under contract, it's best to know what you're doing at the outset. Specific software that can generate these contracts and add a framework to the process is absolutely invaluable in the process. But if you don't have it, that doesn't mean you can't push forward. Just be sure to do your due diligence so that you don't wind up in hot water.

Step 5 -- Flip The Contract

The final step in the process is to flip the contract. This part of the transaction involves funding the escrow account, then cashing out the difference. Clothier tells me that he's built the process to be virtually automated at this point, making as much as $100,000 on any given transaction.

Clothier sticks to residential real estate because it works for him. However, he has students that are reverse wholesaling in the commercial market, netting upwards of $500,000 on any given transaction. To extrapolate this, it's quite clear to see that it can work for industrial as well. In fact, any contract can be used to flip a home, office or even factory if you so choose.

While the no-money down craze might seem to have fizzled out, it's far from that. The beauty of this strategy is that anyone can use a system like this to flip a home no matter what their present credit or financial situation might be, but that doesn't mean it will be easy at the outset. Be prepared for a learning curve if you make the plunge, but as long as you don't give up, it'll likely be well worth the time and effort.

Author, blogger, software engineer and serial entrepreneur. Contributor to some of the biggest media platforms including Forbes, Entrepreneur Magazine, Huffington Post and Engadget. Founder and curator of WanderlustWorker.com, one of the most popular inspirational blogs in t...